Here's What High-Speed Rail Does for Airfares

Via James Fallows of The Atlantic (via the Centre for Asia Pacific Aviation) comes a fascinating chart, showing "airfares on the highly lucrative Beijing-Shanghai route, before and after the arrival of the Beijing-Shanghai high-speed train."

The Beijing-Shanghai high-speed railway commenced operations on 30-Jun-2011 and the impact on economy airfares and hence yields on the route have been immediate and significant, with a slump in economy fares of 52% coinciding with the rail launch.

Naturally, the Chinese carriers deny the new rail lines have anything to do with the precipitous drop in fares:

Ahead of the launch of the high-speed rail network, China Eastern Airlines and several other Chinese carriers denied reports that their recent fare discounts on the Beijing-Shanghai sector are in response to the opening of the Beijing-Shanghai high-speed rail link. According to Qunar, a Chinese travel search engine, fares on the lucrative Beijing-Shanghai sector are down by an average of 40% to 50% with the lowest fare at a 65% discount at CNY400 (USD62), which is lower than the cheapest ticket for the high-speed rail of CNY410. Ctrip similarly stated that airlines have slashed some ticket prices by up to 65% to below the cost of the cheapest rail pass.

An analysis of ITA fare data reveals that fare reductions on the sector coincided with the launch of the network, with economy fares slumping 52%. This fare reduction is in marked contrast to what occurred prior to the line launch, with fares on the sector increasing over the eight-month period prior to its launch. Economy fares in this period were in the USD360 to USD408 range, increasing over this period, but have slumped to between USD268 and USD339 for the Jul/Aug-2011 period, according to ITA data.

Interestingly, high-speed rail has had the opposite effect on first class and business class airfares:

According to CAPA's analysis:

The Beijing-Shanghai is a key business route, with business trips accounting for 70-80% of all airline ticket sales on the sector. This should limit the impact of fare reductions, as long as the airline product remains competitive. This trend was noted by China Eastern Airlines Co Ltd GM Ma Xulun who stated that while “the number of passengers might be reduced 20 or 30% within half a year, but in a long run it will not affect the airlines so much because of diversified demand”.

Business-class fares on Shanghai Hongqiao-Beijing sector stood at USD582.60 as at 30-Jun-2011, marking a 60% increase from 28-Sep-2011 levels. Over the past 12 months, business fares on the sector will have increased by 99% up until the end of Oct-2011. Price variations on the Shanghai Pudong-Beijing sector are less extreme, although fares have still increased by 14% over the past eight months, and will have increased by 17% over the 12-month period to Oct-2011.

Xin Dingding of China Dailyreports that the competition has already prompted improvements by the affected airlines:

Under pressure from the 300 km/h Beijing-Shanghai rail service that started on June 30, the air transport industry has announced several initiatives to improve punctuality and strengthen cooperation with high-speed rail operators.

"There are not only measures to sharpen flights' competitiveness but there will also be cooperation, such as the fact that airlines will put passengers on fast trains if flights are seriously delayed or canceled," an official from the North China regional area of the Civil Aviation Administration of China told Xin on condition of anonymity.

And Wang Zhiping, a Shanghai-based engineer, said: "Competition is a good thing because it is the only reason that the airlines have now decided to do something."